FHA to insure new single-family loans subject to forbearance plans

WASHINGTON — The Federal Housing Administration will temporarily provide backing for new single-family loans that have already entered into forbearance due to the coronavirus pandemic, the agency said Thursday.

Under normal circumstances, borrowers who have entered into forbearance are not eligible to be approved for FHA insurance on their mortgages. The new policy — which the agency outlined in a mortgagee letter — will apply to mortgages submitted for endorsement on or after June 15, and will be in place until Nov. 30.

The guidance was issued by acting FHA Commissioner Len Wolfson, who has been serving in the role since May 27.

The FHA's new forbearance policy comes more than a month after the Federal Housing Finance Agency issued similar guidance to allow Fannie Mae and Freddie Mac to buy single-family home loans in forbearance in an effort to keep the mortgage market running smoothly as the coronavirus has caused lenders to tighten standards.

But unlike the FHFA, the FHA will also require lenders to submit an “indemnification agreement” to the agency for 20% of the amount of the loan. The lender would be responsible for paying that amount to the FHA if the loan were to enter into foreclosure and result in a loss to the agency’s mutual mortgage insurance fund.

The indemnification agreement balances the FHA’s role in supporting market liquidity while keeping that agency’s credit risk exposure at a minimum, “all without disrupting the affordable mortgage insurance premiums borrowers enjoy today,” Wolfson said in a press release.

HUD is accepting feedback on the new policy for 30 days.

Wolfson is also an assistant secretary of the Department of Housing and Urban Development. The Senate confirmed Brian Montgomery, who previously served as FHA commissioner, to the position of HUD deputy secretary in May.

"Len has gained the support of" HUD Secretary Ben Carson "and the entire Department through his hard work leading the Office of Congressional and Intergovernmental Relations," a HUD spokesperson said. "We are confident that FHA is in good hands while we await the Senate’s swift confirmation of Dana Wade.”

Wade's nomination to serve as FHA commsioner has been approved by the Senate Banking Committee but not the full Senate.